It’s common to evaluate potential supplier and supply chain partner’s financial position before placing an order or signing a contract. In fact, most purchasing departments these days, require obtaining supplier key financial data as a standard part of the procurement process. This financial data is then evaluated by the company finance or accounting department and the risk associated with the supplier or supply chain partner is determined. If the supplier is a publically traded US company, that’s easy to do as these companies must comply with SEC rules on financial reporting. But you should be leery of accepting information provided by Chinese suppliers at face value.

China’s largest banks typically only lend to the largest corporations, leaving small and medium sized suppliers to obtain loans from friends and relatives or from a “shadow bank.” Shadow banks are private lending companies that are not regulated by the Chinese government. These shadow banks lend money at a much higher rate of interest, squeezing the small suppliers’ already-thin profit margins. So if you are buying from a Chinese supplier, you should ask and verify where their working capital comes from. You just might find that some suppliers cannot make their loan payments and will simply shut their doors and disappear, leaving you scrambling to find another manufacturer. Finding working capital in China is risky business.

Enter: The Bank of Foxconn. Foxconn, the world’s largest contract manufacturer and maker of iPhones, iPads and many brands of laptops, has ventured into the lending world. To protect its suppliers from the pitfalls of shadow banking in China, Foxconn is now making business loans. That makes Foxconn the banker for the world’s electronics supply chain. And Foxconn isn’t the only company to provide banking services in China. Baidu (the “Google” of China), Alibaba (the “Amazon” of China) and Tencent ( WeChat and mobile games) all have lending banks, too. Lending to small and medium businesses provides higher returns to Foxconn than they can make on their contract manufacturing business. It also provides an opportunity for suppliers to borrow at a lower rate than from shadow banks. Foxconn reportedly has obtained licenses from Chinese local governments to provide loans, factoring, financial guarantees and equipment leasing.

When evaluating suppliers, be sure to ask where their funding comes from, and don’t be surprised if the answer is the Bank of Foxconn.

I recently had the opportunity to travel from the US to Europe to Asia and rode in taxis in all three places. I was reminded that while a taxi ride may seem mundane, the differences are quite significant.

Take London, for example. The famous shiny black cabs are the pride of the city: neat, clean and the drivers are professionals who are required to take a test of their knowledge of London before they are allowed to drive a cab.

You will experience the complete opposite in a place like Chengdu, China, a city of 14 million people, where you risk your life when you go for a wild taxi ride…that is IF the taxi driver knows where you want to go and is willing to take you there, after you argue over the destination and the price. It’s the Wild, Wild West of China, where traffic laws and standard driving rules are still in the early development stages. When the ride is over, you’ll breathe a polluted, but grateful sigh of relief that you survived.

In Germany, the taxis are likely to be Mercedes Benz, which feels a little less threatening as the drivers go at break-neck speed to your destination. Everyone in Germany will tell you that speed is safe. What is it about the Germans and their love of speed?

Then there is Seoul, Korea. A taxi driver will simply refuse to take you anywhere he doesn’t want to go. And knowing the secret between black cabs (those drivers speak English) and the silver cab (good luck trying to communicate) is important to a successful journey.

Un-huh…then there is New York City: taxi drivers in stinky cabs honk at one another, people, cars, and trucks for seemingly no reason at all, all day long and all night long. On one journey in NYC, when I argued with the driver that my building was across the street in Times Square and I expected him to take me all the way there and not drop me in the middle of the chaos, he yelled at me, “get out of the cab, lady and walk!”

And San Francisco, where a drive through the steep hills at 0-60mph for every block, will take years off your life. The drivers are quite friendly and often chatty there, while they risk your life.

And then, there is Beijing. If you don’t ask for the driver to turn on the meter, you will get charged 5-10 times more for the fare than you should. On a recent trip from the Beijing airport to the Hilton Beijing, I asked for a meter cab. The driver took me to a side street across from the Hilton, instead of the entrance, and unloaded my bags. The fare was 58 RMB. I handed the driver 100 RMB and asked for change and a receipt. He got in his taxi and drove off with my 100. I should have known better.

I visited a toy factory in Guangdong Province, China on Friday. This factory manufactures plastic toys and represents other manufacturers that produce radio-controlled toys and dolls. It was quite amazing to see so many plastic toys in one place.

I noticed though, that the Chinese staff was less enthusiastic than usual about selling to me. I wondered about this, but didn’t say anything.

Then I saw an article in the South China Morning Post about toy manufacturers at the Canton Fair, the largest trade show in the world, going on now in Guangzhou. The article reported that toy manufacturers were rejecting large orders and those that were more than 3 months out, for fear of RMB currency adjustments. Apparently, toy manufacturers typically operate on a 2-3% margin and fluctuations in currency can result in losses. Western toy buyers, however, are still demanding lower prices. This double-whammy is causing toy manufacturers to reject orders or cautiously proceed.

I am not sure if this is good or bad. I do know that the low-end toys are sold at low-end retailers such as Wal-Mart where the shoppers cannot afford to pay more. If there is a shortage of cheap plastic toys, will family lifestyles be affected? Will this begin to happen with other products? Is this a vicious cycle?

Currency adjustments to the RMB not only affect the price of imports into the US but they will also affect the razor thin margins that Chinese manufacturers earn. We must proceed with caution and gently allow the RMB to adjust. Otherwise, we may be faced with whiplash economic peril in the East and in the West.

There is a lot of discussion in Congress, the domestic Press and the international Press about the Chinese RMB (yuan) appreciation against the dollar and other world currencies. China is being pressured to take action by the US Government, WTO and IMF.

But Chinese Prime Minister Wen Jiabao and others in the Chinese government are fighting back. If the RMB is re-valued, they say, it will cause full scale recession in China. In America and other Western importing countries, it would cause an automatic rise in prices for imported Chinese goods by 5-15%. If China goes into recession, the whole world will suffer. The cost of goods to American consumers would increase, theoretically causing us to buy less, thus ordering less from China…and so on. It’s a vicious cycle that hurts both US consumers and the Chinese economy. There’s a new world financial order and China can tip the delicate balance if the RMB suddenly increases in value.

But our American politicians on both sides of the aisle argue that millions of jobs will return to the US because it will no longer be cheaper to manufacture in China. HA! No way!

Consider the lowly industrial spring. As I discussed in my recent interview on NPR Morning Edition http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=130258250&m=130260491 even if the price of Chinese-made goods increases by 5% or 10% or 20%, it is still much cheaper to produce goods in China. The biggest effect will be increases in costs to low-end US consumers. Consider Wal-Mart. When low-end goods increase in cost, the Wal-Mart shopper, (probably the least able to afford an increase) gets the brunt of the increased price. It will cause low-income American citizens to suffer…and it will put low-paid Chinese factory workers out of their jobs as demand decreases.

The same is true if the US Government slaps import tariff increases on Chinese goods. The effect will be shoved off onto consumers who must now buy the same goods at higher prices. Again, not a brilliant idea with so many people struggling in this economy.

This is a serious no-win strategy. I agree the RMB should be re-valued gently over time to create a more level global playing field. But making revaluation happen rapidly will cause big, ugly repercussions.